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2008 BIOTECH
Equity Strategy Practices
Survey




     Executive Summary
           Contact us at

       152 N. Cedros Avenue
      Solana Beach, CA 92075

          P 858-484-3636

          F 858-259-7602

    janderson@remedycomp.com


        Visit our website at
       www.remedycomp.com




                               CONSULTING SURVEYS FORUMS
INTRODUCTION
Thank you for participating in the 2008 BIOTECH Equity
Strategy Practices Survey. The survey provides equity strategy
information, specifically geared towards biotech companies. The
results of this survey will be invaluable for those responsible for the
company’s equity programs or involved in the executive
compensation process.

We are committed to making this survey the “gold standard” for
equity strategy information for biotech companies; and plan to
continue the expansion of our participant base. Toward this end:

        This year, we are providing biotech-only data via this survey
         to better reflect the unique pay characteristics of the
         industry. Other life sciences companies are found in our
         medical technology survey.
        We are taking this survey to the web next year. Online
         submission and on-demand reporting will be available for
         participants.
        We are providing quarterly, web-based “hot topic” surveys
         as part of the annual survey subscription.
        We are creating a Client Advisory Board (CAB) to provide
         an opportunity for networking among Remedy
         Compensation Consulting leadership and clients about
         strategic HR and compensation issues and how to react to
         them; and make sure our consulting services and surveys
         are fulfilling a genuine need.

If you have any questions regarding the findings, are interested in
becoming a member of the CAB, or have ideas for the future
direction of the survey, feel free to contact us. We look forward to
                                                                                        Jeremy Anderson
working with you on and having you participate in future editions of
                                                                                                Principal
this survey.
                                                                                   152 N. Cedros Avenue
                                                                          Solana Beach, California 92075
                                                                                       P (858) 484-3636
                                                                                       F (858) 484-3611
                                                                                      C (858) 337-0429
                                                                            janderson@remedycomp.com




1|Page
PARTICIPANT LIST


Affymetrix                    Martek B ios ciences Corporation

Anacor P harmaceuticals       Metabas is T herapeutics

AviaraDx Molecular Medicine   R egeneron P harmaceuticals

B ioS ante P harmaceuticals   S ciele P harmaceuticals

CV T herapeutics              S epracor

Cylene P harmaceuticals       S enomyx

DuP ont                       S equella

Illumina                      T ikvah T herapeutics

KAI P harmaceuticals          T rius T herapeutics

MacuS ight




2|Page
EXECUTIVE SUMMARY
Nineteen biotechnology companies participated in the 2008 edition of this survey. These participants include
pre-IPO and public companies.

Pre-IPO grant practices
Half of the pre-IPO companies surveyed have most recently completed round A of financing. Sixty-three percent
(63%) have activity focused in phase I/II clinical trials. The table below shows the new hire grants to executives,
represented as a percentage of total common shares issued and outstanding:

                                      New Hire Grants to Executives
                   Survey Job Title                                     % of Company
                                                       25th Percentile 50th Percentile 75th Percentile
CEO (founder)                                                7.5%           10.0%           16.4%
CEO (non-founder)                                            3.6%            5.0%           11.8%
Top Financial Executive                                      1.4%            2.0%            2.3%
Top Research & Development Executive                         2.1%            2.2%            3.3%
Top Clinical Research/Medical Affairs Executive (MD)         1.2%            1.3%            1.4%
Top Business Development Executive                           0.8%            1.2%            1.7%

Public company ongoing grant practices
Ninety-one percent (91%) of public companies have formal ongoing equity grant guidelines for executives,
directors, and managers. Formal ongoing grant guidelines are less common for individual contributors, but still
prevalent in over half of companies surveyed. Stock options and RSUs are the major vehicle types for ongoing
grants for executives and directors. At the manager level and below, restricted stock units are more popular. All
executives and directors are eligible for ongoing grants, as is over 70% of the general employee population. All
executives and 97% of directors actually received grants, as did over 65% of the general employee population.
A majority of the companies (67%) make ongoing grants on an annual basis. Half of companies surveyed
directly tie the size of the ongoing grant to performance ratings. Typical vesting schedule for ongoing grants is
four year vesting in annual increments.




3|Page
EXECUTIVE SUMMARY
Public company new hire grant practices
Over 60% of companies have formal new hire equity grant guidelines. 100% of exempt employees are eligible
for new hire grants and 86% of non-exempt employees are eligible. Participation is virtually 100% across the
organization with the exception of non-exempt employees and certain executives. The target number of shares
for a new-hire executive is 15,000 at median, with a median value of $53,483. The primary equity vehicle
continues to be stock options. Typical vesting schedule for ongoing grants is four year vesting in annual
increments.

Promotional grants
Few companies (40%) have formal promotional equity grant guidelines and prevalence is highest at the
manager level and below. Some of these companies use a percentage of the midpoint between the new and old
salaries based on new hire or ongoing grant guidelines to determine the size of the promotional grant. Others
base the size on a promotion structure, or they have a fixed amount per title.

Aggregate stock option utilization
Median gross burn rate is 2.4% and net burn rate is 1.7%. At median, issued overhang is 11.6% and fully
diluted overhang is 15.7%. Only 18% of companies have a specified target annual burn rate. For those
companies with a set target gross burn rate, the median is 4.7%.

Employee stock purchase plan (ESPP)
45% of companies offer employees the opportunity to participate in an Employee Stock Purchase Plan (ESPP). At
median, companies provide a 15% discount on the purchase of shares. The median look-back period is 24
months. At median, companies have 2% of total common shares issued and outstanding reserved for use under
the plan.

Additional shares request to shareholders
45% of participants requested additional shares last year. At median, 6.1% of total common shares issued and
outstanding were requested. Requests ranged from 1.8% to 6.3% (25th percentile to 75th percentile). 100% of
the requests were approved.

Equity ownership guidelines
Less than twenty percent (20%) of companies have formal equity ownership guidelines for executives. For those
with formal guidelines, the basis for equity ownership is a multiple of base salary. At median, the guidelines are
450% of base for the CEO, 350% of base for direct reports to the CEO, and 300% for all other non-direct
report executives. Most companies allow four years to meet the equity ownership guideline requirements.




4|Page
REMEDY COMPENSATION
CONSULTING
                                                                         ABOUT REMEDY


Remedy is a leading compensation consulting firm. We partner with private, pre-IPO and publicly traded companies that are intent
on improving the link between their people, how they are paid and how that ultimately translates into company success. Our clients
benefit from fact-based consulting advice rooted in industry experience.

CONSULTING
Remedy specializes in the following areas of compensation:
                                                                                                 CLIENT LIST
  • Assistance to the Board of Directors
  • Executive compensation                                                                       Below is a representative list
                                                                                                 of our recent clients:
  • Sales compensation
  • Workforce compensation                                                                       •   Alphatec Spine
                                                                                                 •   Anacor Pharmaceuticals
  • Equity strategies
                                                                                                 •   Beckman Coulter
Our services can include the following, depending on your needs:
                                                                                                 •   BIOCOM
 • Working with leadership — to establish pay strategies                                         •   BioSante Pharmaceuticals
 • Conducting competitive assessments — comparing pay levels and program                         •   Bio-Rad
    characteristics to market norms                                                              •   Buzztime
 • Designing or refining plans — defining plan characteristics and payout mechanics in           •   Cardica
    support of plan objectives                                                                   •   CooperVision
 • Conducting financial modeling — to understand the financial impact of potential               •   Digirad
    changes for both the company and plan participants                                           •   Dot Hill
                                                                                                 •   Exelixis
 • Drafting plan documentation — ensuring a common understanding for participants
                                                                                                 •   Hay House
    and those responsible for administering the plan
                                                                                                 •   Illumina
SURVEYS                                                                                          •   Inverness Medical Innovations
                                                                                                 •   Karl Storz
We believe market data is an important component in the advice we provide. In turn,
                                                                                                 •   Life Technologies
Remedy offers in-depth surveys for select industries, including the life sciences and high-
                                                                                                 •   Metabasis Therapeutics
technology industries. Our suite of surveys provides you with comprehensive information,
                                                                                                 •   Neurocrine Biosciences
designed to support decision making. Our surveys include:
                                                                                                 •   Quake Global
  Medical Technology
                                                                                                 •   REMEC
  • MEDTECH Sales Compensation Survey                                                            •   San Diego Blood Bank
  • MEDTECH Equity & Executive Compensation Survey                                               •   Senomyx
                                                                                                 •   Silicon Image
  Biotechnology
                                                                                                 •   Somaxon
  • BIOTECH Equity & Executive Compensation Survey
                                                                                                 •   Synthetic Genomics
  RemedyASAP Surveys                                                                             •   US Endoscopy
  • For companies seeking specialized information, we offer custom survey capabilities.
    Through our industry connections, we are able to deliver high participant-count, high
    quality findings.

FORUMS
Remedy understands the need for industry-specific events and the desire of professionals to get to know their peers at other similar
companies. We are committed to providing those opportunities to get to know one another, develop professionally, keep abreast of
changes in the marketplace and discuss the issues that directly impact your organization.




                                            C O N S U LT I N G   SURVEYS        FORUMS

                                                  W W W. R E M E DYC O M P.C O M
REMEDY COMPENSATION
CONSULTING
                                                                     ABOUT REMEDY


 LEADERSHIP BIOS
 Jeremy Anderson is a Principal for Remedy Compensation Consulting. Jeremy advises clients in the areas of executive
 pay, equity strategy design and sales force compensation. His experience includes the design and implementation of sales
 compensation programs, equity strategies, base pay structures, short-term incentives and performance management
 systems. In addition, he assists clients with the development of organization-wide communication strategies in support
 of new program launches. Prior to founding Remedy, Jeremy was a consulting principal with Top Five Data Services, Inc.,
 a consultant with iQuantic in their San Francisco office, and was a senior consultant in Arthur Andersen’s Human Capital
 Service practice. Jeremy holds a B.B.A in both Finance and Organizational Behavior & Business Policy from Edwin L. Cox
 School of Business, Southern Methodist University.

 Ted Ginsburg is a Principal for Remedy Compensation Consulting. Ted focuses on executive compensation consulting
 for both publicly traded and privately held employers, specializing in employment agreements, non-qualified deferred
 compensation plans, SEC filings, change of control programs and equity based arrangements. Prior to founding Remedy,
 Ted served as a consulting principal for Top Five Data Services, Inc., the national executive compensation practice leader
 for Buck Consultants, co-national practice leader of employee benefit consulting with Grant Thornton LLP, an employee
 benefits tax partner with KPMG, a partner and employee benefits practice head of Laner Muchin et. al and of counsel with
 Mayer Brown & Platt. Ted is an active public speaker and has published articles in such periodicals as MX Magazine and
 the Tax Advisor. He is a licensed attorney and a Certified Public Accountant, and holds AB, MBA and JD degrees from
 Washington University in St. Louis, Missouri.

 Ken Wechsler is a Principal for Remedy Compensation Consulting. Ken advises clients in the areas of executive and board
 compensation, incentive and sales compensation, and broad-based compensation program design. In addition, to working
 a significant portion of his career at three prominent HR consulting firms (Mercer, Watson Wyatt and Towers Perrin), Ken also
 has significant Corporate experience as the Head of Compensation and Benefits for two Fortune 500 employers (Science
 Applications International Corp and Gateway). Ken’s a frequent speaker on a variety of compensation and benefits topics.
 He’s a member of World-at-Work’s national faculty, teaching their “Total Rewards” (T-1) and “Quantitative Methods” (T-3)
 courses. He received his undergraduate degree at Claremont McKenna College with dual Bachelor Degrees in Economics
 and Mathematics.




 For more information, please contact any of our Principals:
 Jeremy Anderson                         Ted Ginsburg                              Ken Wechsler
 858-484-3636                            440-720-0898                              858-755-8675
 janderson@remedycomp.com                tginsburg@remedycomp.com                  kwechsler@remedycomp.com




                                        C O N S U LT I N G   SURVEYS       FORUMS

                                              W W W. R E M E DYC O M P.C O M

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2008 Biotech Equity Strategy Practices Survey

  • 1. 2008 BIOTECH Equity Strategy Practices Survey Executive Summary Contact us at 152 N. Cedros Avenue Solana Beach, CA 92075 P 858-484-3636 F 858-259-7602 janderson@remedycomp.com Visit our website at www.remedycomp.com CONSULTING SURVEYS FORUMS
  • 2. INTRODUCTION Thank you for participating in the 2008 BIOTECH Equity Strategy Practices Survey. The survey provides equity strategy information, specifically geared towards biotech companies. The results of this survey will be invaluable for those responsible for the company’s equity programs or involved in the executive compensation process. We are committed to making this survey the “gold standard” for equity strategy information for biotech companies; and plan to continue the expansion of our participant base. Toward this end:  This year, we are providing biotech-only data via this survey to better reflect the unique pay characteristics of the industry. Other life sciences companies are found in our medical technology survey.  We are taking this survey to the web next year. Online submission and on-demand reporting will be available for participants.  We are providing quarterly, web-based “hot topic” surveys as part of the annual survey subscription.  We are creating a Client Advisory Board (CAB) to provide an opportunity for networking among Remedy Compensation Consulting leadership and clients about strategic HR and compensation issues and how to react to them; and make sure our consulting services and surveys are fulfilling a genuine need. If you have any questions regarding the findings, are interested in becoming a member of the CAB, or have ideas for the future direction of the survey, feel free to contact us. We look forward to Jeremy Anderson working with you on and having you participate in future editions of Principal this survey. 152 N. Cedros Avenue Solana Beach, California 92075 P (858) 484-3636 F (858) 484-3611 C (858) 337-0429 janderson@remedycomp.com 1|Page
  • 3. PARTICIPANT LIST Affymetrix Martek B ios ciences Corporation Anacor P harmaceuticals Metabas is T herapeutics AviaraDx Molecular Medicine R egeneron P harmaceuticals B ioS ante P harmaceuticals S ciele P harmaceuticals CV T herapeutics S epracor Cylene P harmaceuticals S enomyx DuP ont S equella Illumina T ikvah T herapeutics KAI P harmaceuticals T rius T herapeutics MacuS ight 2|Page
  • 4. EXECUTIVE SUMMARY Nineteen biotechnology companies participated in the 2008 edition of this survey. These participants include pre-IPO and public companies. Pre-IPO grant practices Half of the pre-IPO companies surveyed have most recently completed round A of financing. Sixty-three percent (63%) have activity focused in phase I/II clinical trials. The table below shows the new hire grants to executives, represented as a percentage of total common shares issued and outstanding: New Hire Grants to Executives Survey Job Title % of Company 25th Percentile 50th Percentile 75th Percentile CEO (founder) 7.5% 10.0% 16.4% CEO (non-founder) 3.6% 5.0% 11.8% Top Financial Executive 1.4% 2.0% 2.3% Top Research & Development Executive 2.1% 2.2% 3.3% Top Clinical Research/Medical Affairs Executive (MD) 1.2% 1.3% 1.4% Top Business Development Executive 0.8% 1.2% 1.7% Public company ongoing grant practices Ninety-one percent (91%) of public companies have formal ongoing equity grant guidelines for executives, directors, and managers. Formal ongoing grant guidelines are less common for individual contributors, but still prevalent in over half of companies surveyed. Stock options and RSUs are the major vehicle types for ongoing grants for executives and directors. At the manager level and below, restricted stock units are more popular. All executives and directors are eligible for ongoing grants, as is over 70% of the general employee population. All executives and 97% of directors actually received grants, as did over 65% of the general employee population. A majority of the companies (67%) make ongoing grants on an annual basis. Half of companies surveyed directly tie the size of the ongoing grant to performance ratings. Typical vesting schedule for ongoing grants is four year vesting in annual increments. 3|Page
  • 5. EXECUTIVE SUMMARY Public company new hire grant practices Over 60% of companies have formal new hire equity grant guidelines. 100% of exempt employees are eligible for new hire grants and 86% of non-exempt employees are eligible. Participation is virtually 100% across the organization with the exception of non-exempt employees and certain executives. The target number of shares for a new-hire executive is 15,000 at median, with a median value of $53,483. The primary equity vehicle continues to be stock options. Typical vesting schedule for ongoing grants is four year vesting in annual increments. Promotional grants Few companies (40%) have formal promotional equity grant guidelines and prevalence is highest at the manager level and below. Some of these companies use a percentage of the midpoint between the new and old salaries based on new hire or ongoing grant guidelines to determine the size of the promotional grant. Others base the size on a promotion structure, or they have a fixed amount per title. Aggregate stock option utilization Median gross burn rate is 2.4% and net burn rate is 1.7%. At median, issued overhang is 11.6% and fully diluted overhang is 15.7%. Only 18% of companies have a specified target annual burn rate. For those companies with a set target gross burn rate, the median is 4.7%. Employee stock purchase plan (ESPP) 45% of companies offer employees the opportunity to participate in an Employee Stock Purchase Plan (ESPP). At median, companies provide a 15% discount on the purchase of shares. The median look-back period is 24 months. At median, companies have 2% of total common shares issued and outstanding reserved for use under the plan. Additional shares request to shareholders 45% of participants requested additional shares last year. At median, 6.1% of total common shares issued and outstanding were requested. Requests ranged from 1.8% to 6.3% (25th percentile to 75th percentile). 100% of the requests were approved. Equity ownership guidelines Less than twenty percent (20%) of companies have formal equity ownership guidelines for executives. For those with formal guidelines, the basis for equity ownership is a multiple of base salary. At median, the guidelines are 450% of base for the CEO, 350% of base for direct reports to the CEO, and 300% for all other non-direct report executives. Most companies allow four years to meet the equity ownership guideline requirements. 4|Page
  • 6. REMEDY COMPENSATION CONSULTING ABOUT REMEDY Remedy is a leading compensation consulting firm. We partner with private, pre-IPO and publicly traded companies that are intent on improving the link between their people, how they are paid and how that ultimately translates into company success. Our clients benefit from fact-based consulting advice rooted in industry experience. CONSULTING Remedy specializes in the following areas of compensation: CLIENT LIST • Assistance to the Board of Directors • Executive compensation Below is a representative list of our recent clients: • Sales compensation • Workforce compensation • Alphatec Spine • Anacor Pharmaceuticals • Equity strategies • Beckman Coulter Our services can include the following, depending on your needs: • BIOCOM • Working with leadership — to establish pay strategies • BioSante Pharmaceuticals • Conducting competitive assessments — comparing pay levels and program • Bio-Rad characteristics to market norms • Buzztime • Designing or refining plans — defining plan characteristics and payout mechanics in • Cardica support of plan objectives • CooperVision • Conducting financial modeling — to understand the financial impact of potential • Digirad changes for both the company and plan participants • Dot Hill • Exelixis • Drafting plan documentation — ensuring a common understanding for participants • Hay House and those responsible for administering the plan • Illumina SURVEYS • Inverness Medical Innovations • Karl Storz We believe market data is an important component in the advice we provide. In turn, • Life Technologies Remedy offers in-depth surveys for select industries, including the life sciences and high- • Metabasis Therapeutics technology industries. Our suite of surveys provides you with comprehensive information, • Neurocrine Biosciences designed to support decision making. Our surveys include: • Quake Global Medical Technology • REMEC • MEDTECH Sales Compensation Survey • San Diego Blood Bank • MEDTECH Equity & Executive Compensation Survey • Senomyx • Silicon Image Biotechnology • Somaxon • BIOTECH Equity & Executive Compensation Survey • Synthetic Genomics RemedyASAP Surveys • US Endoscopy • For companies seeking specialized information, we offer custom survey capabilities. Through our industry connections, we are able to deliver high participant-count, high quality findings. FORUMS Remedy understands the need for industry-specific events and the desire of professionals to get to know their peers at other similar companies. We are committed to providing those opportunities to get to know one another, develop professionally, keep abreast of changes in the marketplace and discuss the issues that directly impact your organization. C O N S U LT I N G SURVEYS FORUMS W W W. R E M E DYC O M P.C O M
  • 7. REMEDY COMPENSATION CONSULTING ABOUT REMEDY LEADERSHIP BIOS Jeremy Anderson is a Principal for Remedy Compensation Consulting. Jeremy advises clients in the areas of executive pay, equity strategy design and sales force compensation. His experience includes the design and implementation of sales compensation programs, equity strategies, base pay structures, short-term incentives and performance management systems. In addition, he assists clients with the development of organization-wide communication strategies in support of new program launches. Prior to founding Remedy, Jeremy was a consulting principal with Top Five Data Services, Inc., a consultant with iQuantic in their San Francisco office, and was a senior consultant in Arthur Andersen’s Human Capital Service practice. Jeremy holds a B.B.A in both Finance and Organizational Behavior & Business Policy from Edwin L. Cox School of Business, Southern Methodist University. Ted Ginsburg is a Principal for Remedy Compensation Consulting. Ted focuses on executive compensation consulting for both publicly traded and privately held employers, specializing in employment agreements, non-qualified deferred compensation plans, SEC filings, change of control programs and equity based arrangements. Prior to founding Remedy, Ted served as a consulting principal for Top Five Data Services, Inc., the national executive compensation practice leader for Buck Consultants, co-national practice leader of employee benefit consulting with Grant Thornton LLP, an employee benefits tax partner with KPMG, a partner and employee benefits practice head of Laner Muchin et. al and of counsel with Mayer Brown & Platt. Ted is an active public speaker and has published articles in such periodicals as MX Magazine and the Tax Advisor. He is a licensed attorney and a Certified Public Accountant, and holds AB, MBA and JD degrees from Washington University in St. Louis, Missouri. Ken Wechsler is a Principal for Remedy Compensation Consulting. Ken advises clients in the areas of executive and board compensation, incentive and sales compensation, and broad-based compensation program design. In addition, to working a significant portion of his career at three prominent HR consulting firms (Mercer, Watson Wyatt and Towers Perrin), Ken also has significant Corporate experience as the Head of Compensation and Benefits for two Fortune 500 employers (Science Applications International Corp and Gateway). Ken’s a frequent speaker on a variety of compensation and benefits topics. He’s a member of World-at-Work’s national faculty, teaching their “Total Rewards” (T-1) and “Quantitative Methods” (T-3) courses. He received his undergraduate degree at Claremont McKenna College with dual Bachelor Degrees in Economics and Mathematics. For more information, please contact any of our Principals: Jeremy Anderson Ted Ginsburg Ken Wechsler 858-484-3636 440-720-0898 858-755-8675 janderson@remedycomp.com tginsburg@remedycomp.com kwechsler@remedycomp.com C O N S U LT I N G SURVEYS FORUMS W W W. R E M E DYC O M P.C O M